Dan Mac Alpine: Wealth, the one thing that defies gravity

Senior editor Dan Mac Alpine examines the numbers to see if trickle-down economics has delivered on its promise of improving living standards for everyone by cutting taxes on the wealthiest Americans.

Dan Mac Alpine

What goes up must come down. Well, not really. Not everything.

One thing defies Newton’s Law of Gravity. Money. Once money goes up the socio-economic ladder, it stays up. Rich people keep their money. That’s why they’re rich.

Don’t get me wrong. I’ve got nothing against rich people. I’d like to say some of my best friends are rich. I’d like to say it. But I’d be lying.

And before you go all socialist screed on me, I understand a society needs rich people. If nothing else, the rest of us need them as a carrot held out to show, sometimes, a combination of luck, hard work and talent can reap bountiful material rewards.

But mostly, it’s the luck of birth.

On a larger economic, dismal-science kind of level, capitalism generates production, product and technological innovation that benefit all of us, and it takes people, rich people, willing to invest in those products, innovations and ideas to help bring them to fruition.

We need economic policy that reflects that reality.

However, the capitalism the Republican Party currently practices has little to do with economic reality and has more to do with a combination of myth and hope. The general idea being if we just get out of rich people’s way, cut their taxes, allow them to suck up more and more of our nation’s wealth, they’ll reinvest it, buy stuff and, eventually, we’ll all be rich. Or at least better off.

They call it trickle-down economics and President George Bush I had it right when he called it “voodoo economics” on the primary campaign trail when he ran against President Ronald Reagan.

When it comes down to it, how many homes can one person own? OK. At least seven. But we generate more wealth when seven people can own one home each.

A perusal of economic data shows trickle-down economic theory simply doesn’t work — or at least it doesn’t do what its proponents claim it does, which is to, eventually, create more wealth for everyone and raise everyone’s living standards.

Paraphrasing President John F. Kennedy, this rising tide raised the yacht, but it left the dinghy high and dry.

“Indeed, the only segment of the population that experienced large gains in wealth since 1983 is the richest 20 percent of households,” writes Edward N. Wolff in a June 2007 study from The Levy Economics Institute of Bard College and the Department of Economics, New York University.

Worse, Wolff observes, “The early 2000s witnessed both exploding debt and the middle-class squeeze. While median wealth grew briskly in the late 1990s, it fell slightly between 2001 and 2004, while the inequality of net worth increased slightly. Indebtedness, which fell substantially during the late 1990s, skyrocketed in the early 2000s.”

A study from the Federal Reserve Board, the Survey of Consumer Finances, indicates the wealthiest 1 percent of American families own 34.4 percent of the nation’s net worth, and the top 10 percent own 71 percent of the nation’s wealth.

That leaves the rest of the 90 percent of us scrambling for the other 29 percent of the pie.

And Wolff points out the inequity is getting worse. The Reserve Board study uses data from 1983. Wolff’s data says the top 20 percent of the wealthiest households owned 81.3 percent of the nation’s wealth in 1983. By 2004, they owned 84.7 percent.

The rest of us all lost ground.

The only time since 1983 that began to reverse the trend was the late 1990s, when the nation was experiencing an economic boom and when President Bill Clinton was in office.

The rest of the time we’ve been pursuing an economic dream that simply hasn’t come true in roughly 20 years of “trickle-down” economics.

Rather, middle-class and working-class Americans have been financing the American dream, first by going to two-income households and then simply by going into debt. Running up our credit cards. Buying homes we couldn’t afford and either flipping them for bigger homes we could afford even less or refinancing them with speculative mortgages that simply took as an article of faith home prices would rise forever.

Trickle-down economic theory sounds good. It feeds our belief in the self-made person. That rich people are rich because they somehow deserve to be rich. And some are.

But we need to see reality. Trickle-down economics has been an empty promise. Wealth has gone up. It hasn’t come down.